Media News

Facebook now an Advertising Business

26 Apr 2012

Facebook is now an advertising business. Like a lot of ad businesses, Facebook advertising sales slowed from the fourth quarter of last year -- which includes holiday season-ad spending -- and the first quarter of 2012, a period when a lot of marketers pull back spending.

Sales came in at $1.06 billion in the first quarter, a 45 per cent increase from $731 million in 2011, but a slight decline from fourth-quarter sales of $1.13 billion reported in February. Facebook also grew faster in the fourth quarter, up 55 per cent from $731 million in sales for the same period last year. Net income fell 12 per cent to $205 million from $233 million.

The quarter-to-quarter slowdown is typical to advertising businesses, and shows that even though Facebook is growing fast, it is subject to cycles familiar to the rest of the ad business. Marketers typically spend the greatest amount on advertising during the fourth-quarter holiday seasons and that drops off significantly in the new year.

"The rapid growth in our business may have partially masked these seasonal trends to date and the seasonal impacts may be more pronounced in the future," the company said. Facebook relies on advertising for 83 per cent of its revenue, according to the social network's filings.

That said, Facebook's ad products are still nascent, and the company disclosed some figures bound to attract even greater attention than revenue: more than 900 million global active users; 526 million who visit the social network at least once a day.

Facebook also disclosed details of its plan, unveiled April 9, to buy Instagram. The company financed the $1 billion deal with 23 million shares and $300 million in cash. Facebook valued its shares at $30.89 apiece as of Jan. 31.

Facebook is rolling out new advertising services to step up competition with Google Inc. and Yahoo Inc. During the first quarter, Facebook said it would add mobile advertising along with new ads to reach users when they log off the company's website.

Facebook aims to raise $5 billion in what will probably be the largest internet IPO in history. The company might seek a valuation of $75 billion to $100 billion, people familiar with the matter have said.

The company is expected to command $6.1 billion in revenue this year, according to eMarketer Inc., a research company. That would compare with the $3.71 billion of 2011, while trailing what eMarketer had estimated in September.

Facebook, which gets most of its sales from advertising, will lose its lead to Google in U.S. display-ad revenue next year as the social-networking service's advertising growth slows, according to eMarketer.